Sunday, September 19, 2010

What is bankruptcy?

Before the days of America, during the reign of the English King, debtors who couldn't pay their bills were sent to prison and their belongings seized. This was known as the debtors prison. Creditors got what they could from the debtor's estate, which usually amounts to nothing. Debtors then pay their debts by remaining incarcerated.

Overtime, the English law evolved into what we now call "bankruptcy law". Through over a hundred years of legal evolution, bankruptcy today does not involve going to prison--with some exceptions, such as bankruptcy fraud. Instead, today, the law leans toward consumer protection and less on creditors retribution. U.S. bankruptcy law requires bankruptcy debtors to "surrender" a certain amount of assets and prohibits creditors from trying to go after the debtor's paycheck, bank accounts, and other assets after a bankruptcy petition has been filed. Modern bankruptcy protects consumers from losing everything, while allowing creditors to recoup as much of their loss as possible. It also forces creditors to back off to allow debtors space to breath, regroup, and rebuild.

Don't waste your money paying creditors if you can't afford to...

The common myth that people will lose their home (or everything) when filing for bankruptcy is something cooked up by creditors to prevent people from filing. Further, the common myth that it will destroy one's credit was also designed to scare desperate debtors into using every penny of their life savings, retirement, and even children's college funds to try to pay back debts that they simply cannot afford to pay. As a result, many people who come to me for advice on bankruptcy have exhausted everything they own and is left with nothing but the clothes on their back and maybe their home. Before you drain your retirement account, talk to me first (or another lawyer that handles consumer debt defense)--educate yourself to save yourself.

Wow, I'm glad I just read this post. I always thought those myths were true. See it on TV and the media all the time. Even after reading this, I still have that little belief in me that I'd lose everything if I filed for bankruptcy. LOL Can't help it. xD

I know you specialize in bankruptcy but would you happen to know much about forbearance? I'm a student but I'm taking a break due to family troubles and now SallieMae wants me to do "forbearance" on my student loan.

Hmmm... my dad (unfortunately) filed for bankruptcy about a year ago due to a failed business venture, and I was always under the impression that it was "the end of the world" for him. Excuse me for my ignorance, but does this apply to Canadian law as well?

@Gjee Student loans are evil because they will follow you through the rest of your life, nothing can get rid of it (short of becoming disabled). On the flip side, it's a long-term investment (which I consider a "good debt"). Fortunately, student loan companies aren't in any rush to get their money back. Forebearance puts your student loan payment on hold until you are ready to resume payments. The word "forebear" legally means to "forgive". You should accept the forebearance. However, you should know that interest may still continue to accrue while the payments are put on hold. This means that your balance might increase; this all depends on the terms of your forebearance.

@thexxsmall No. Although US and Canada's bankruptcy laws are similar, there are major differences between the two. I'm sure people file bankruptcy in Canada with the same goals as Americans filing bankruptcy--to get rid of debt and protect assets from creditors.

It was not too long a go my sister and brother in law were going to file for bankruptcy because they were almost to the point of no money and had loans to pay for thier cars, plus credit cards, sadly they ended up giving their SUV car up. :( With the both of them no jobs, its a live day by day with just my brotherinlaw's laid off money. But as we all know that won't last long. Yet, they haven't filed for bankruptcy yet because they are afraid it will be bad in the long run even if they have to sacrifice some of their things. So is it a good thing or bad thing? I did google some research on it but it wasn't clear, they said it was good if you didn't have the money but like I have any idea? -__- I'm hoping to learn new things like this blog post, just like I've learn from your wonderful gf DSK STEPH!

Bankruptcy is pretty common, I presume. I always see them in TV ads and benches and other things O_O Glad you gave input on forebearance in student loans. I thought it was literally to forgive your debt if you are truly stuck in a rut, but I see now that never goes away. But a student loan is good debt, because education is always something to give back :)

I agree with gabbiie. I find all of this confusing, which is probably good that you're the lawyer and not me. Steph sometimes says on her blog that if someone needs a lawyer, that you're it. haha. can i hire you to help me with my business law homework and readings? Just kidding. I probably can't afford it.

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Hello, I'm an attorney in Washington state. My offices are in Seattle and Everett.
I practice consumer bankruptcy, creditors rights, legal issues involving foreclosure and short sales, other civil matters in both the federal and state level.

I also handle business transactional and immigration law, though my practice lately resolves around consumer bankruptcy due to our unfortunate economy.

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